**EXHIBIT 10.1****SEVERANCE AGREEMENT**     This Severance Agreement (the “Agreement”) is made and entered into effective as of March 24,2006, by and between Michael D. Yonker (the “Executive”) and Pixelworks, Inc., an Oregoncorporation (“Company”).**RECITALS**     A.     Executive has accepted Company’s offer of employment by signing the letter dated February26, 2006 from Allen Alley to Executive, attached hereto as Exhibit A (the “Offer Letter”); and     B.     Pursuant to the terms of the Offer Letter, this Agreement formalizes and replaces theseverance provisions summarized in the Offer Letter.**AGREEMENT**     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which the partiesacknowledge, the parties agree as follows:     1.     Termination by Company without Cause. In the event Company terminates Executive’semployment without Cause, as that term is defined below, then upon Executive’s satisfaction of theRelease of Claims requirement stated in Paragraph 4 below, Company shall provide Executive with thefollowing severance benefits: (a) twelve (12) months of base salary and (b) in the event Executiveis eligible for and properly elects to continue his group health benefits through COBRA, theCompany shall pay Executive an amount equal to the premium cost to continue such benefits fortwelve (12) months. The severance benefits shall be payable in a lump sum on or before the firstregularly scheduled pay date following Executive’s satisfaction of the Release of Claimsrequirement stated in Paragraph 4 below. All payments to Executive shall be reduced by suchamounts as are required to be withheld by law. Severance benefits shall not be owed if terminationof Executive’s employment with Company occurs due to Executive’s death, disability, Executive’sresignation, or Company’s termination of Executive for Cause.     2.     Cause Definition. “Cause” shall mean any one or more of the following: (i) amaterial act of dishonesty, fraud, or misconduct by the Executive that is in connection withExecutive’s responsibilities as an Executive of the Company; (ii) Executive’s commission of actsconstituting a felony which the Board reasonably believes has had or will have a materialdetrimental effect on the Company’s reputation or business; or (iii) repeated willful failure bythe Executive to perform Executive’s duties as an employee of the Company after there has beendelivered to the Executive a written demand for performance from the Company which describes thebasis for the Company’s belief that the Executive has not substantially performed Executive’sduties and had a 30-day opportunity to cure, no cure having been made.     3.     At-Will Employment. The Company and the Executive acknowledge that the Executive’semployment is and shall continue to be at-will, as defined under applicable law. The severancebenefits in this Agreement shall be in lieu of the severance benefits in the Offer Letter and inlieu of any other severance benefits or policies maintained by Company that may otherwise beapplicable to Executive.     4.     Execution of Release As a condition of receiving the severance benefits, Executiveshall, on or before forty-five (45) days after Company delivers the release to Executive, enterinto and not revoke a general release of claims against the Company, its subsidiaries andaffiliates, satisfactory to Company. The release shall be substantially in the form attachedhereto as Exhibit B, with such modifications as Company determines to be reasonably necessary ordesirable to ensure effective release of all claims.     5.     Notices. Notices and all other communications contemplated by this Agreement shallbe in writing and shall be deemed to have been duly given when personally delivered or when mailedby U.S. registered or certified mail, return receipt requested and postage prepaid. In the case ofthe Executive, mailed notices shall be addressed to Executive at the home address which Executivemost recently communicated to the Company in writing. In the case of the Company, mailed noticesshall be addressed to its corporate headquarters, and all notices shall be directed to theattention of its Secretary.
 

 
     6.     Arbitration. Any dispute or controversy arising out of, relating to, or inconnection with this Agreement, or the interpretation, validity, construction, performance, breach,or termination thereof, shall be settled by binding arbitration before a single arbitrator to beheld in Portland, Oregon, in accordance with the National Rules for the Resolution of EmploymentDisputes then in effect of the American Arbitration Association (the “Rules”). The decision of thearbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment maybe entered on the arbitrator’s decision in any court having jurisdiction. The arbitrator shallapply Oregon law to the merits of any dispute or claim, without reference to conflicts of lawrules.     7.     Integration. This Agreement replaces the severance provisions of the Offer Letter.Except as expressly stated in this paragraph, the Offer Letter remains in effect according to itsterms. This Agreement and the Offer Letter represent the entire agreement and understandingbetween the parties as to the subject matter herein and supersede all prior or contemporaneousagreements, whether written or oral.     8.     Severability. The invalidity or unenforceability of any provision or provisions ofthis Agreement shall not affect the validity or enforceability of any other provision hereof, thatcan be given effect without the invalid or unenforceable provisions of the Agreement.     IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of theCompany by its duly authorized officer, as of the day and year first above written.      **PIXELWORKS, INC.**